10-year yield sinks to 17-month low

NEW YORK (CNNMoney.com) -- Treasury yields dropped to yearly lows Monday as fears about the global economic recovery continued to shake investor confidence.

What yields are doing: The yield on the 10-year note stood at 2.58% Monday after dropping to 2.57% in earlier trading, the lowest level since March 2009. On Friday, the 10-year yield fell to a 16-month low of 2.68%.

What's moving the market: "It's the same old story," said Peter Cardillo, chief market economist at Avalon Partners. "The bond market is worrying about a double-dip recession and deflation, with so many uncertainties and fears surrounding the global economy."

These fears worsened Monday after a report showed that China is poised to overtake Japan as the world's second-largest economy, with growth in Japan slowing sharply to 0.4% in the second quarter.

Meanwhile, in the U.S., the Empire Manufacturing index rose to 7.10 in August from 5.08 in July, while economists polled by Briefing.com had expected a jump to 7.5.

The National Association of Home Builders said its August index of builder confidence in the market for new single-family homes slipped to 13 points from 14 points in July. Economists had forecast the index to hold steady at 14 points, the lowest level since April 2009.

What analysts are saying: Until investors gain confidence in the global economy and are assured that a recovery is taking hold, yields could continue to slide, said Cardillo.

"For now, the strength of the bond market is there, and people are really worried," he said. "Until that fear factor is diminished it's not going to change, and yields could go even lower."

But as soon as the economy does show gradual signs of improvement, the bond market could quickly lose steam, he added.

"When the market realizes that these fears are not going to come to fruition, you could see a sharp reversal in the bond market," Cardillo said. "One of these days that's going to have to happen."